You have estimated that all consumers who buy from your firm have identical demands for your product. Each customer\'s demand is given by Q = 20 - ( P/2 ) , and your total cost of production is TC = 45 + 20 Q . You want to devise a two-part pricing strategy ( T ; P ), where T represents the fixed fee and P the price per unit. Given this information, the optimal two-part pricing is:
T = $50 and P = $20
T = $100 and P = $20
T = $200 and P = $15
None of the above
Solution
Given: Demand equation: Q = 20-0.5P
Total Cost: TC = 45+20Q
Under two part tariff, usage fee is set equal to the MC and entry fee is set equal to the total consumer surplus.
From the total cost function, MC comes out to be 20.
Therefore, usage fee = $20
Coming to entry fee, calculate consumer surplus as follows:
CS. = 0.5
.
You have estimated that all consumers who buy from your firm have iden.docx
1. You have estimated that all consumers who buy from your firm have identical demands for your
product. Each customer's demand is given by Q = 20 - ( P/2 ) , and your total cost of production
is TC = 45 + 20 Q . You want to devise a two-part pricing strategy ( T ; P ), where T represents
the fixed fee and P the price per unit. Given this information, the optimal two-part pricing is:
T = $50 and P = $20
T = $100 and P = $20
T = $200 and P = $15
None of the above
T = $50 and P = $20
T = $100 and P = $20
T = $200 and P = $15
None of the above
Solution
Given: Demand equation: Q = 20-0.5P
Total Cost: TC = 45+20Q
Under two part tariff, usage fee is set equal to the MC and entry fee is set equal to the total
consumer surplus.
From the total cost function, MC comes out to be 20.
Therefore, usage fee = $20
Coming to entry fee, calculate consumer surplus as follows:
CS. = 0.5
